A husband and wife cyber-crime team have pleaded guilty to trying to launder $4.5bn (£3.5bn) of Bitcoin that he had stolen in a hack in 2016.
Heather Morgan and Ilya Lichtenstein were arrested last year in New York after police traced their riches back to the crypto heist.
While evading police, Morgan masqueraded as a rapper and tech entrepreneur. As part of a plea deal, Lichtenstein admitted he was behind the hack.
The couple both pleaded guilty to money laundering, but Morgan pleaded guilty to an additional count of conspiracy to defraud the United States.
In spite of attempting to cover up her crimes, Morgan published dozens of expletive-filled music videos and rap songs filmed in locations around New York, under the name Razzlekhan.
In her lyrics she called herself a “bad-ass money maker” and “the crocodile of Wall Street”. In articles published in Forbes, Morgan also claimed to be a successful tech businesswoman, calling herself an “economist, serial entrepreneur, software investor and rapper”.
But while developing her rapping and tech persona, she and her computer programmer husband were attempting to cash out their fortune stolen from the crypto firm Bitfinex.
The couple now face prison sentences with Lichtenstein in line for a possible maximum 20 years in prison and Morgan a possible 10. At the time of their arrest in February 2022, the stash of 119,000 Bitcoins was worth about $4.5bn – making it the US Department of Justice's largest single financial seizure in its history.
When the hack was carried out, the Bitcoins were worth about $71m. Court documents showed in detail how the couple cashed out millions of dollars of the Bitfinex Bitcoins into traditional money using sophisticated techniques to try to stay under the radar.
Records show the couple:
- Split up the Bitcoin into tiny amounts and transferred it to thousands of different crypto wallets with fake identities
- Mixed their stolen funds with other criminal cryptocurrency on the darknet marketplace Alphabay
- Purchased gold coins
- Set up shell companies to make the Bitcoin funds look legitimate
The successful police operation is the latest case to utilise tools able to analyse transactions on Bitcoin's public blockchain ledger. One of the couple's key mistakes was shopping with Walmart supermarket vouchers paid for with the stolen funds.
“Police were able to link the Walmart gift cards back to some of the proceeds of the Bitfinex hack, which then opened up the further investigation,” said Jonathan Levin, founder of cryptocurrency investigators Chainalysis which was involved in the investigation.
“Buying gift cards and moving between different exchanges and different cryptocurrency never actually created this sort of break in provenance that the couple intended,” he said.
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When police raided the couple's Manhattan apartment, they found hollowed-out books created to conceal mobile phones. They also discovered dozens of burner handsets, several USB sticks and $40,000 in cash.
Police successfully decrypted a spreadsheet meticulously detailing the couple's intricate methods for laundering the stash, allowing them to recover nearly the full amount.
In court documents, prosecutors say they uncovered communication records that indicate Morgan and Lichtenstein were planning to flee the US for Russia – his country of birth. If successful, they would have probably lived a billionaire lifestyle, safe from arrest by the US.
When the hack happened, Bitfinex customers took an enforced “haircut”, losing 36% of their assets held by the crypto exchange. By 2019, the company had reimbursed the victims, so now the Hong Kong-based firm and some customers who exchanged their losses for shares are in line for a windfall once the recovered Bitcoins are returned.
— CutC by bbc.com
